Abstract:

The paper decomposes a geographical concentration index to examine the temporal scope of
a spillover, which is the period of time over which one firm’s activity directly affects the
location of other firms’ activities. Natural advantages are fixed over reasonably long time
periods, but if spillovers have a limited temporal scope then this can be used to identify these
agglomeration economies. To operationalize the index decomposition the paper proposes an
empirical methodology that is based on frequency estimator approach, which is applied
across time periods. The approach is tested by numerical simulation and by application to a
dataset on the location of new economic activity across British regions in the form of
investment by foreign-owned plants. Overall, the results support the approach and indicate
that the temporal scope of a spillover is on average about five years.